1. Field of Invention
The present invention relates generally to the field of investment portfolio management. More particularly, the present invention relates to a computerized method and system for creating a stock investment report based on a buyback investment strategy.
2. Description of Related Art
Investment in accordance with the stock buyback theory is based on the premise that a company's management is in the best position to determine when the company stock is over or under valued. Further, it has been postulated that companies announcing a stock buyback tend to outperform the overall market. For example, in the article entitled "Market Underreaction to Open Market Share Repurchases," by D. Eikenberry and J. Lakonishok, Journ. of Finance (1994), the authors demonstrate that companies announcing stock buybacks outperformed the market by a margin of up to 9% in the four years after the initial repurchase announcement. The study did not follow the companies, however, to determine their performance for any action, (i.e., actual repurchase to decrease the percentage of outstanding shares) after the announcements were made. Conversely, in "The New Issues Puzzle," by J. Ritter and T. Loughran, Journ. of Finance (1996), the authors demonstrated that companies issuing shares, whether through an initial public offering (IPO) or secondary offering, underperformed the market by 7% annually during a five year period after the stock's issuance. These studies demonstrate a company's ability to buy low and sell high in terms of their own stock. Currently, there is conflicting literature, however, as to whether companies actually repurchasing their stock outperform others in the market.
To develop successful investment strategies, financial advisers currently rely on a myriad of theories and factors in an attempt to find the best investment vehicles for their clients. These theories are often based on age-old economic trends or newly developed calculations and stock screening techniques. One such recognized value factor for predicting or analyzing company performance is the price/sales ratio. The price/sales ratio is the relationship of a company's stock price to its annual sales (or revenues) per share. In the book, What Works on Wall Street, by J. P. O'Shanunnasey (1996), the author showed that the 50 stocks with the lowest price/sales ratio out performed the market by an average of 4.27 percentage points from Dec. 31, 1952 to Dec. 31, 1994. This level of outperformance was greater than the difference produced by any single variable.
There is, however, no single method that combines the performance of the price/sales ratio with the buyback theory to maximize the performance of a stock investment portfolio. In fact, many experts in the field discount the importance of buyback statistics, and those recognizing its potential have not thought to combine it with a company's price/sales statistics.
Therefore, there exists a need for an investment strategy that automatically determines those companies buying back the greatest percentage of their stock while maintaining the lowest price/sales ratio. The results of this method should help investors develop a strategy that combines the benefits of the price/sales ratio value factor with the stock buyback theory.